Source: Cointelegraph
Original: “Tax agencies will double down on crypto before Bitcoin (BTC) hits $1 million”
Perspective from: Robin Singh, CEO of Koinly
In the race between regulation and Bitcoin reaching historic highs, there is no doubt that tax agencies around the world will significantly enhance their cryptocurrency tracking systems before Bitcoin hits the $1 million mark.
Crypto investors should not be complacent or think they can continue to escape until Bitcoin truly reaches the million-dollar threshold. In addition to keeping a close eye on the future, tax authorities are becoming increasingly adept at tracing the past. Many jurisdictions have the authority to look back at previous tax years, and if tax departments realize they have missed a substantial amount of taxable assets, they will not let it slide easily.
This could mean trouble for Bitcoin holders who have already started spending their profits.
Tax agencies will catch up through automated data sharing
Governments around the world are still in a strange gray area regarding cryptocurrency tax rules, which can change at any time. Take the IRS in the United States as an example; starting in 2025, the IRS suddenly requires investors to adopt the “wallet-by-wallet cost tracking method,” no longer allowing the “universal wallet method.” The former is much more labor-intensive than the latter but provides the IRS with more of the data it craves.
Although automated data sharing is not yet as widespread as in the stock market, it is only a matter of time before centralized exchange crypto data catches up. Several crypto exchanges, including Coinbase and Binance.US, have already been submitting 1099-MISC forms to the IRS for users who earn rewards exceeding $600 each fiscal year.
The end of the honesty system
Globally, each country's tax authority has its own regulatory approach to cryptocurrency. For example, the Australian Taxation Office (ATO) achieves automatic reporting of stock costs and sales through pre-filled data, but cryptocurrency data has not yet been included in the pre-filled system.
Instead, any activity on centralized exchanges will trigger alerts on taxpayers' returns, indicating that the ATO is aware of that crypto activity. This requires taxpayers to honestly report whether they have realized capital gains or losses for the year.
Whether you are selling or merely purchasing cryptocurrency, if there have been activities for several consecutive years without proactive reporting, the risk of being audited will significantly increase.
Globally, the honesty system is coming to an end. Once tax authorities perfect their cryptocurrency monitoring systems, they can selectively audit past records. The ATO has established a fairly intensive data matching program with centralized exchanges within its jurisdiction.
If you value your mental health, a multi-year audit of your crypto assets is definitely something you want to avoid. Tax authorities are accelerating their efforts, and accountants are also eager to help clients avoid getting caught as compliance measures become increasingly complex.
Tax agencies will strengthen cooperation in the coming years
In the coming years, we can expect a rapid advancement in global tax data sharing between jurisdictions, a trend that is already beginning to take shape. In March 2024, the governments of Australia and Indonesia reached an agreement to exchange tax information, with the use of cryptocurrency being one of the key areas of focus.
Earlier, in November 2023, the governments of 47 countries, including the UK, Brazil, Germany, and Japan, committed to joining the Crypto Asset Reporting Framework (CARF) and plan to launch information-sharing agreements by 2027.
Do not think that decentralized finance (DeFi) and non-fungible tokens (NFTs) are still in a regulatory blind spot. Tax authorities are fully aware of the profits obtained through decentralized exchanges. Agencies like the IRS have already introduced guidelines for collecting user data from non-custodial brokers, although the implementation timeline has been pushed back to 2027.
While tracking these transactions may be more challenging, and some investors believe that as long as assets are not transferred to centralized exchanges, they cannot be tracked, tax authorities are quickly catching up. This is no longer the era where “the crypto industry knows the most.” Tax agencies are bringing in more experts from the crypto field to help them understand the evasion tactics people may employ.
Perspective from: Robin Singh, CEO of Koinly.
Related: The critical point of user growth in cryptocurrency—Can verification mechanisms keep up?
This article is for general informational purposes only and should not be considered legal or investment advice. The views, thoughts, and opinions expressed in this article are solely those of the author and do not necessarily reflect or represent the views and positions of Cointelegraph.
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